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You are here: Home / Ideas and Options / Capital Funding Program (CFP)

Capital Funding Program (CFP)

September 26, 2012 by admin

Introduction

  • CFP is a proprietary financing program available through White Rock Advisors, LLC.
  • The program is a structure that allows new and established companies to create external capital with terms that may be more favorable than the equity and debt markets.
  • CFP is particularly attractive in a market that is not providing sufficient liquidity to corporate borrowers.
  • Approximately $3 billion has been placed over a period of several years for private and public corporations as well as governmental entities.

Key Advantages

  • It can be used as a substitute for equity without incurring dilution.
  • As a debt substitute, CFP is non-recourse to the Borrower.
  • Unlike debt instruments or direct loans, there are no restrictive covenants.
  • It can be used to finance transactions for as little as $5 million and as large as several hundred millions of dollars.
  • The program can finance a stream of contract payments extending to 20 years.
  • Minimum term: 3 years
  • Terms are flexible including the deferral of payments for up to 10 years.
  • Nominal retainer, investment banking success fee, filing fees and coupon only for Investor.
  • Generally can be closed in 60 to 90 days.

Applications

  • Reduce pressure on working capital and cap-ex.
  • Fund mergers and acquisitions.

Example

A contract manufacturer of pharmaceuticals has a multimillion dollar, five year contract with an investment-grade rated big pharma company. The contract manufacturer is seeking capital for operations and would prefer not to go to the equity markets or pay high fees for debt financing. The contract manufacturer is able to get the big pharma company to agree absolutely and unconditionally to make certain required minimum payments on a quarterly basis (other time periods may be permitted) throughout the contract or in specified later years. Our investors, subject to their approval, will provide the contract manufacturer with the present value of the future minimum payments at investment rates, on a non-recourse basis.

FAQ

How are the obligations secured? The payments are secured by the absolute and unconditional obligations of an investment-grade rated entity and our investor files a UCC-1 against the repayment obligations. The payments must be date-certain and sum-certain.

Is the interest rate fixed or variable? The rate is fixed for the term.

What are the principal repayment provisions? The provisions can be customized to suit the specific cash flow needs of the project including the option to defer the start of repayment for up to 5 years.

Are the obligations non-recourse? Transactions are non-recourse to our client, usually the Borrower. 100% of the recourse is to the Obligor making the payments.

Are there post funding reporting requirements? No.

What is the security for the transaction? The security is an assignment of an unconditional promise to pay from a credit worthy entity.

Are the transactions recorded as debt to the Obligor? No. Financings are often structured via operating/maintenance agreements to avoid being classified as debt on the balance sheets of the Obligor, which is more beneficial for many budget-restricted entities such as large corporations, hospitals, school districts, government, etc. This may require a footnote or contingent liability disclosure.

When does the entity receiving proceeds in the transaction get their funds? All proceeds are paid in entirety at time of settlement in the form of a wire transfer.

Summary of Terms Compared to Conventional Funding Options

CFP Conventional Debt Private Equity
Funding Applications No Industry Limitations Traditional Start-Up
Expansion/Growth/Mezzanine
Recourse No; Funding is non-recourse to borrower Yes; Funding is recourse to borrower and often personal Yes: Funding is recourse to borrower
Funding Scope $5 million and up Limited by department and credit review committees Highly variable and dependent on fund size
Loan to Value 100% net present value of future payment stream Typically 10% to 50% Typically 10% to 70%
Interest Rate Fixed; Competitive Not Fixed; May be competitive Not Fixed; Not Competitive
Investment Banking Fees Nominal retainer, and success fee Retainer and success fee Typically Fees AND Equity
Investor Fees, Equity Grants None, none Closing & renewable fees Typically Fees AND Equity
Time to close 60 – 90 days 90+ Days 6mos to 18mos
Post Funding Reporting None Quarterly Monthly/Daily
Repayment Structure Customized to suit specific cash flow needs of project including option to defer start of repayment for up to 10 years Restrictive/Rigid 5-7 yr 10x Investment return expectation
Covenants & Reporting to Credit Agencies None Restrictive/Rigid Extensive and complicated
Security/Collateral Assignment of unconditional promise to pay from creditworthy entity 1st Lien position on tangible assets Control
Oversight None Audits, frequent reviews life of loan Board representation
Documentation Efficient prepared in-house Litigious and Extensive Litigious and Expensive
Relationship Dynamic Team/Collegial Supportive relationship manager, adversarial senior management Adversarial

 

 

 

 

 

 

 

 

 

Filed Under: Ideas and Options

Contact:

WHITE ROCK ADVISORS, LLC
5001 Spring Valley Road, Suite 850W
Dallas, TX 75244
972.644.7111
www.whiterockadvisors.com

Simon Martin
972.644.7111 Ext. 337
smartin@whiterockadvisors.com

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